Omar mohamed nashaat 2019 6269

Real-World Pricing Strategy Examples:

Pricing your products and services is one of the most daunting yet most crucial
parts of doing business. The goal of strategic pricing is to maximize your profit, but
it’s a lot more complicated than raising your prices or increasing your profit
margins.

Every business is different—different products, different customers, different

market share—so it makes sense that there isn’t a one-size-fits-all pricing strategy.
So how do you make the most out of your sales without alienating a potential
customer? And how does your pricing align with the brand identity you want to
convey?

Read on for our full guide on how to price your product or service, including 12 of
the most common pricing strategies and real-life examples you can learn from

What Is a Pricing Strategy/Pricing Model?

Most marketing guides use pricing strategy and pricing model interchangeably, but
there are some key differences that you should keep in mind.

A pricing strategy is how the seller uses pricing to achieve a certain business
objective. More specifically, it deals with the psychological reaction that a
consumer has towards certain kinds of prices.

A pricing model, on the other hand, is how the seller goes about implementing the
pricing strategy. Pricing models are usually specific and quantitative in nature.
Here are some of the most common pricing models:

Hourly: You charge an hourly rate (e.g., $40/hour) and then bill the client for the
total number of hours worked.

Project-based: You charge a flat rate for the entirety of the project (e.g., $5,000 for
a website).
Retainer: You charge a monthly fee for on-going deliverables (e.g., $300/month
for search engine optimization).

Performance-based: You charge a rate based on the results you produce (e.g.,
$100 per key performance indicator reached).

Cost-plus: You charge for the production costs (e.g., $10 to make a shirt) plus a
profit markup (e.g., 100%, or total $20).

The Four Cs of Pricing Your Product

Pricing strategies work best when they take into consideration the four major
pillars of pricing: customers, current positioning, competitors and costs. Keep the
four Cs in mind when choosing the best pricing approach for your business.

CUSTOMERS

Who is your target market? What is your ideal customer’s disposable income
range? How much would that customer be willing to pay for your products and
service? Will pricing your products/services impact your customers’ purchasing
behavior or attitude towards your brand? What kind of pricing strategy speaks to
your target customer the best?

CURRENT POSITIONING

What is your brand identity? Which parts of the market are you catering to with
your marketing efforts? Are you known as a budget or low-cost alternative, or are
you a luxury business with elite clients? Are you a relatively unknown startup, or
does your company already have a hold on the market? Your products and
services need to be priced accordingly—the more luxury your offerings (or the
more established you are as a company), the more you can demand from your
customers.

COMPETITORS
How much are your competitors charging? If your competitors raise or lower their
prices, how would that affect your sales? Are your products/services comparable,
or do you offer something special for the same cost? You can use your
competitors’ prices as a benchmark, but always take note of any major differences
(e.g., cost, quality, location, etc.) that allow you to be more flexible on your price.

COSTS

It’s simple math—you can’t profit if you’re spending more than you bring in.
Always take into consideration both production costs (how much it costs to
produce a product or service) and fixed costs. (What you have to pay regardless of
how many units you sell—e.g., marketing, rent, staffing, other operating expenses,
etc.)

The Four Main Pricing Strategies You Should Know

While there are dozens of pricing strategies, there are four basic strategies that
provide the foundations for more complex pricing. These are: economy pricing,
penetration pricing, price skimming and premium pricing.

PRICING STRATEGY EXAMPLES: #1 ECONOMY PRICING

Under the economy pricing strategy, your company charges as little as possible to
entice the largest number of potential customers. This works by lowering
operating and production costs as much as you can. Because your profit margins
are usually lower, you also have to focus on volume.

This pricing approach is most commonly seen at dollar stores or chain

supermarkets like Target or Walmart. However, if you’re a small business, this
tactic is a bit tricky. You may not have the volume, market share, or brand
awareness to set your products and services at the lowest possible price to reach
that target customer.

PRICING STRATEGY EXAMPLES: #2 PENETRATION PRICING

If you’re a relatively new business, you may want to consider pricing for optimum
market penetration. This means that you initially sell your product or service at a
low introductory price to attract new customers, then raise prices one you’ve
secured your share in the market.

You can see this pricing strategy at work with telecommunications or cable
companies. They’ll initially charge a lower-than-market rate for the first month or
so to entice customers to sign up for their services. There are two potential
downsides to this strategy: one, your profits will take a hit initially; and two, some
customers may not buy into the higher price.

PRICING STRATEGY EXAMPLES: PRICE SKIMMING

Think of price skimming as the opposite of penetration pricing strategy. You start
with a higher initial cost, and then lower the price over time as consumer demand
falls and newer goods take over the market. This is a great way to cover
production and marketing costs early while reinforcing the idea that your brand is
one of quality and luxury.

Price skimming is very common in the tech/electronics industry. Whenever a new

flagship phone from Apple or Samsung comes out, prices are high. However, if a
customer buys the same phone a year or even just a few months later, they could
get it at a much lower price.

PRICING STRATEGY EXAMPLES: #4 PREMIUM PRICING

It may seem counterintuitive to price your product at a premium price point, but
customers can actually respond positively to higher prices. Because only a few
people can afford them, expensive products create the illusion of exclusivity,
status and quality.

You can opt for a premium price if your product or brand has a competitive
advantage. The trade-off is that though your business will likely sell fewer units,
but the high profit margin should be able to make up for loss of volume. Premium
pricing can be found in most industries, from restaurant and hospitality to
automotive to fashion.

Other Kinds of Pricing Strategy

While economy, penetration, skimming and premium pricing are the most
common pricing strategies, they’re not the only ones you can use. Below are eight
more approaches that could benefit your business.

PSYCHOLOGICAL PRICING

Also known as charm pricing, psychological pricing takes advantage of the fact that
humans are emotional by nature. We respond to things emotionally and
impulsively rather than logically.

The biggest example of this is when sellers mark their prices as $0.99 or $0.75
rather than rounding up to the nearest whole number—like when an item costs
$99.99 instead of $100. This is because we see and react to the first set of
numbers and immediately think it is cheaper, even though there’s a negligible
difference in cost.

BUNDLE/PRODUCT LINE PRICING

If you have a range of products or services that complement each other, you can
bundle together products and charge a lower price than if customers bought them
individually. This is a great way to get rid of stock, move products and encourage
more spending.

Retail brands will bundle together related items, and service providers have
package deals if you get multiple services at one time. The tricky part of product
line pricing is that you have to make sure that your profit loss doesn’t outweigh
how much you earn by pushing multiple products at the same time.

PROMOTIONAL PRICING
Promotional pricing is also known as discount pricing because—you guessed it—
you sell your products or services at a discounted rate for a short period of time.
This could involve slashing off a percentage of the price, providing vouchers or
coupons, launching two-for-one deals or giving away free items with every
purchase.

Promo pricing follows the idea that some profit is better than no profit. We
recommend using this strategy on high-volume periods (e.g., the holidays) or at
the end of the season when moving products out of inventory is a higher priority
than pure profit.

GEOGRAPHICAL PRICING

If you are a local business, then geographical pricing isn’t for you. But if you’re an
international company that sells all over the world, then this pricing approach is
very relevant.

With geographical pricing, you price your goods and services according to
geographical factors such as cost of living, average income, legislation, taxes, and
of course, supply and demand. For example, gas stations in a busy urban area are
likely to have different prices than similar stations in a rural town.

CAPTIVE PRODUCT PRICING

This pricing strategy works best if customers have to keep buying from you to
continue using your products. Examples of this are shaving products and
subscription services like the Dollar Shave Club. Once you buy a razor from a
particular brand, the customer will have to keep buying blades and other
accessories from you since other brands won’t be compatible.

You can charge a low price for the initial buy-in (e.g., razor handles, printers), and
then make up for any profit loss through the renewables (e.g., blades, printer ink).

OPTIONAL PRODUCT PRICING

You might be familiar with optional product pricing through another term:
upselling. With upselling, you can tack on extra services or products for a slightly
higher cost. You see airlines using this strategy all of the time, with extra charges
for optional services such as baggage, priority check-in, in-flight meals and exit
row seats. The idea behind this is that it’s easier and more profitable to convince a
current customer to spend more than it is to try and attract a new customer.

VALUE PRICING

Value-based pricing means basing your prices off how much value your customers
feel they are getting when they buy your product or service, instead of deciding
prices based on how much a product or service costs to make. The idea behind
this is that customers are willing to spend more money on something that they
feel is worth it and provides them with value.

For example, a T-shirt may cost just $5 or $10 to produce. But because there’s
some value attached to the style and brand, some companies may charge as much
as hundreds or even thousands of dollars for it.

DYNAMIC PRICING

Dynamic pricing is a pricing strategy that’s variable instead of fixed. This means
that, depending on the time or other external factors, prices can and will fluctuate.
You see this often in the tourism industry—hotels and airlines usually charge
higher rates during peak season and will lower their rates when there is less
consumer demand.

Flexible pricing systems often use technology to generate the best rates
depending on market factors. While this makes it easier to maximize profits,
gathering the data necessary to implement dynamic pricing may be too time-
consuming or expensive for small businesses.

Conclusion
The right pricing strategy will help you get more customers and increase your
profits. But what works for one company may not necessarily work for you—even
if they’re in the same industry. It’s important to take a look at your specific
marketing strategy and circumstances before choosing the most effective price
strateg